Introduction
Cash flow statements final balance indicates the net cash flow in a business which reflects the balance of money which ultimately remains after deducting the total cash outflows flows from the cash inflows in a business for a particular financial period. (Vance, 2003) Payments and business expenses mostly form the cash outflows in a business while sales revenues, sale of assets and other incomes form the bulk of the cash inflows. (Drucker, 1999)
| Cash from operations | 671 | ||
| Increase in retained profits | |||
| Add | |||
| Depreciation | 191 | ||
| Proposed Taxation | 467 | ||
| Proposed Dividend | 225 | 883 | |
| 1554 | |||
| Add | |||
| Increase in payables | 20 | ||
| Decrease Owings | -118 | ||
| Increase in Inventories | -17 | ||
| Increase In receivables | -37 | -152 | |
| 1402 | |||
| Add Cash flow from other sources | |||
| Proceeds from sale of fixed assets | 330 | ||
| Proceeds from treasury stock | 84 | 425 | |
| Increase in other assets | 11 | ||
| 1,827 | |||
| Purchase of fixed assets | 140 | ||
| Taxation paid | 467 | ||
| Dividend paid | 225 | ||
| 832 | |||
| 995 | |||
| deferred taxes | 130 | ||
| Increase in Intangible assets | 65 | ||
| Other Income | 58 | ||
| less increase in stock | 36 | ||
| Share capital | 635 | ||
| Long term debts | 24 | ||
| 948 | |||
| Increase at bank | 47 | ||
| Cash and Equivalents 2011 | 301 | ||
| Cash and Equivalents 2012 | 348 | ||
| 47 |
1. The Warf computer’s cash flow has a positive net cash flow. The cash flow from operations was the most active besides the cash flow from investing activities. (Garrison, Noreen & Brewer, 2009)
The cash flow of Warf computers indicate that the increase in fixed assets is much more that it was reported. These means that more assets were bought or alternatively the assets that had been reported as sold were still in the company’s record. (Ross, Westerfield & Jaffe, 2013)
2. The two methods of compiling the cash flow statement are direct and indirect methods. The indirect method is preferable as it reveals more information on the operations of the firm and it’s more commonly used. It starts with cash from operating activities which can be the net income of the company or the balance of the retained earnings in the balance sheet changes. (Khan, 1993)
3. Nicks expansion could be affected by the highly levered firm. The company has a lot of debts and its current assets and current liabilities are almost on the range of 1:1 when they should be 1:2 respectively as per the current assets and the current liabilities. (Vance, 2003)
The Cash flow coverage = Net cash flow/ interest Expense
The Cash Flow Coverage = 47/105
= 44.76 %
The interest coverage ratio is not sufficient. The net cash flow value is below the normal average of 50% and above. This ratio points out that the company is heavily indebted. (Adams, 2008)
However, the expansion strategy of Nick would receive a boost if the investment made would result in large profits for the company. The company has invested heavily on its fixed assets which increased by 30.5% from the year 2012 as per the balance sheet financial statements. The sale of stock to raise money for the expansion may work but the company needs to do more to generate and expand its revenue base. Advertisement and aggressive marketing strategies might do wonders for the Warf Computer Company.
References
Adams, S. (2008) Fundamentals of business economics. Financial Management (UK), 46–48. Retrieved from Business Source Premier Database.
Drucker, F. (1999) Management Challenges of the 21st Century. New York: Harper Business.
financial problems and make effective business decisions. New York: McGraw-Hill.
Garrison, R., Noreen, W. & Brewer, P. (2009) Managerial Accounting, McGraw-Hill Irwin.
Higher Education.
Khan, M. (1993) Theory & Problems in Financial Management, Boston: McGraw Hill
Ross, S. A., Westerfield, R. W., & Jaffe, J. (2013). Corporate finance (10th Ed.) New York: McGraw-Hill Irwin.
Vance, D. (2003) financial analysis and decision making: tools and techniques to solve
financial problems and make effective business decisions. New York: McGraw-Hill.
